Global Logistics—January 2012

Containers Aweigh

The International Association of Ports and Harbors (IAPH) has joined the World Shipping Council, the International Chamber of Shipping (ICS), and the Baltic and International Maritime Council to encourage the International Maritime Organization (IMO) to amend the Safety of Life at Sea Convention (SOLAS). The measure would ensure that a ship and port facility have a container's verified actual weight as a condition for carriage.

The announcement comes as the IMO's Dangerous Goods, Solid Cargoes, and Containers subcommittee, which is responsible for container stowage and ship operations safety, continues its efforts to construct a SOLAS requirement that loaded export containers have a verified weight prior to vessel loading.

"Weighing containers to confirm their actual weight is the right operational and safety practice," says Dr. Geraldine Knatz, president of Tokyo-based IAPH and executive director of the Port of Los Angeles. "There is substantial experience with such a requirement in the United States, demonstrating that this is feasible on a technological and commercial basis.

"It is time to make this a global safety practice, and our association will assist its members in cooperating with terminal operators to develop a suitable and effective process," she adds.

All four organizations note that governments around the world continue to focus on obtaining more complete knowledge of products actually in cargo containers arriving in their countries, and that Customs authorities would welcome having accurate cargo weights as they screen import freight.

China's 3PL Overtures

China, as well as foreign businesses operating in-country, has always relied on third-party logistics providers to coordinate and facilitate transportation and logistics activities. But as exports continue to wane and domestic consumption grows, the country is looking to establish its own domestic 3PL market.

The government made a similar overture in 2010 when it decided to consolidate airfreight operations between Cathay Pacific and Air China. The move was predicated by the fact that foreign carriers move approximately 70 percent of international freight. China wanted to capture a bigger piece of the transportation business. Now that sentiment is percolating in the integrated 3PL space.

"In 10 years or fewer, the increased financial strength of some large Chinese logistics firms will help them go global and some may challenge the big logistics multinationals such as DHL, UPS, and FedEx in global markets," says Jeffrey Wong, partner, KPMG China.

What's driving this change? The financial advisory firm points to China's fast-growing e-commerce sector as one example. Between 2008 and 2010 that market quadrupled, a sure indication that domestic consumption is swelling. In fact, China's equivalent to Amazon.com, the Alibaba Group, is planning to set up its own logistics company.

The lowest-hanging fruit for Chinese logistics service providers will be domestic express deliveries, which have recently outgrown the international business. Local knowledge is still a challenge for foreign companies and 3PLs trying to make inroads, and presents an obvious advantage for homegrown expertise.

Brazil's Great Train Robbery

Reminiscent of a scene out of Butch Cassidy and the Sundance Kid, police in Brazil's southeastern Sao Paulo state are investigating the theft of 55 tons of corn from a moving train.

Thieves greased the tracks, making the wheels of the 54-wagon locomotive skid and slow down. They then used a tow truck with a hook to remove the corn-filled containers, authorities say. The theft occurred as the train traveled through a rural area about 180 miles north of the capital Brasilia, on its way to the southeastern port of Santos with 66 tons of corn and sugar.

While this train robbery is extraordinary, cargo theft in Brazil is common, costing businesses millions of dollars in losses annually. The lack of serious legal penalties is added incentive for thieves to target freight, according to FreightWatch's third-quarter 2011 Latin America Cargo Theft Report.

Currently, 80 percent of cargo theft is concentrated in southeastern Brazil, the country's most affluent and freight-heavy region. The majority of incidents, however, are truck hijackings, with 77 percent occurring while vehicles are in transit (see chart below), according to the Austin, Texas, cargo security watchdog. The latest freight train theft is an anomaly, and marks a new and more brazen piracy trend in the shipping industry.

Eur-Asian Fracture

Lingering uncertainty over the Eurozone's economic prospects and currency is having a noticeable impact in Asia, given the fact that Europe remains the world's top export destination and is responsible for one-quarter of all Asian exports.

The splintering of global supply chains in terms of regionalization and country-specific specialization only exacerbates concerns among Asian countries. Even the slightest drop in demand from Europe has a percussive effect as it radiates out to all parts of the supply chain—the more complex the product and the broader the sourcing footprint, the greater the damage. Governments fear Europe's bullwhip effect will ensure a tailspin throughout Asia.

China, to a degree, has helped stem demand deterioration in some export markets by stimulating domestic consumption. Other countries are much more vulnerable.

Singapore recently reported that its economy will likely suffer a sharp slowdown next year as export orders from developed countries dry up. The country is heavily reliant on trade, especially as a redistribution hub for finished products moving out of the region.

Elsewhere, Japan suffered its first drop in exports in three months during October 2011, threatening the country's recovery from the earthquake and tsunami. A stronger yen, which shrinks the value of overseas earnings, is forcing domestic manufacturers to shift production overseas.

Netherlands Tests Truck of the Future

Dutch trucking company Rutges Cargo has joined with the Netherlands' Ministry of Infrastructure and the Environment and independent applied research company TNO (Netherlands Organization for Applied Scientific Research) to pilot the "Truck of the Future" program. The objective is to differentiate ideas, products, and solutions that create fuel economy, with specific focus on systems that lower wind resistance, stimulate fuel management, and support better driving behavior.

Working with trucking partners such as Rutges, TNO has equipped hundreds of trucks with various systems to measure and evaluate which ones have the greatest impact on reducing fuel consumption and carbon emissions—in effect, separating best-of-breed technologies and innovations from the herd.

"We consider the sustainable and accountable transport of goods to be an important responsibility," says Martin Gussinklo, managing director, Rutges Cargo. "Our participation in the program endorses this principle and will explore how an aerodynamic side fence fitted to our trailer, for example, decreases air resistance."

For its part, Rutges Cargo has also invested in technology to achieve lower aerodynamic resistance by using "spray down" mudguards, and lower rolling resistance through a system that monitors tire pressure.

When the test program is complete, TNO will share its research findings with the Dutch transportation industry. By giving shippers and carriers better clarity to unique performance characteristics, it hopes to encourage industry to invest in proven solutions that create a more sustainable and economical transport chain.

China Growth Shifts High-tech Sourcing Balance

China's explosive manufacturing growth, middle class expansion, and rising inflation are shifting the global sourcing equilibrium for many high-tech companies in Asia, according to Change in the Supply Chain, a recent report authored by IDC Manufacturing Insights on behalf of UPS.

As China becomes more prohibitive from a total landed cost perspective, companies are exploring less-expensive options elsewhere in the region, as well as closer to the United States, where they can respond more quickly to demand. Nineteen percent of high-tech company respondents plan to source components and raw materials from North America in the next three to five years, the survey reveals.

Shifts in sourcing strategies will likely be most pronounced within the Asia Pacific region. Supply chain diversification as a measure of economy, risk aversion, and contingency planning—especially in light of the Japan earthquake and tsunami, and Thailand floods—continues to shape how high-tech companies manage their global operations. Although China and Japan will continue to supply most companies, sourcing will move to both emerging and existing Asia Pacific countries in the next three to five years, according to survey findings.

Forty-two percent of respondents currently source components and raw materials from mature APAC countries, including Thailand, Malaysia, and Singapore. This figure jumps to 55 percent when looking ahead to the next three to five years. Similarly, 16 percent of companies now source from emerging countries such as the Philippines and Vietnam, while 24 percent plan to source components from these countries in the future.

As a consequence of these rapidly changing sourcing dynamics, half of all high-tech trade lanes are expected to involve intra-Asia movements in five years.

U.S., Canada Ease Cross-border Barriers

U.S. and Canadian importers and exporters have reason to be optimistic with the announcement of two action plans designed to accelerate trade across their shared border. President Obama and Canadian Prime Minister Stephen Harper have jointly released the Action Plan on Perimeter Security and Economic Competitiveness—parts of which are expected to begin in early 2012.

Following the U.S.-Mexico cross-border resolution earlier in 2011, the other end of the NAFTA pipeline is getting a procedural uplift. Along with Customs advancements, the action plans promise to ease travel, improve security in North America, and align regulatory approaches between the two countries.

A central piece of both plans involves the Customs-Trade Partnership Against Terrorism (C-TPAT) program, which includes more than 10,000 U.S. companies.

"The C-TPAT program will be unified with its Canadian counterpart," says Marianne Rowden, president and CEO of the American Association of Exporters and Importers, a Washington, D.C., trade organization. "It's another step in an ongoing effort to harmonize trade security rules around the world. That's good for reducing costs and creating U.S. jobs necessary to stabilize the global economy."

U.S. Vessel Import Value

The price per kilogram of U.S. vessel imports is largest for Asia due to high-valued goods such as vehicles and machinery coming from that continent. Conversely, large quantities of low-valued products such as fresh produce and natural resources come from Central and South America.

Source: Zepol Corporation, www.zepol.com

Ocean Carrier Currents Converge

Amid rumblings of consolidation within the ocean freight industry—notably the possibility of a merger between Japanese steamship lines MOL, "K" Line, and NYK—carriers are consolidating services in certain lanes.

Hamburg Süd and Maersk Line, and CMA-CGM, CSAV, and CSCL, respectively, have reached an agreement to combine services between Asia, South Africa, and the east coast of South America. The move comes as part of continued efforts within the shipping industry to balance supply and demand during the upcoming 2012 slow season.

The latest news is by no means a revelation in an industry where seasonal partnerships are commonplace. Still, coming off a 2011 peak shipping season that never materialized, further signs indicate that the industry has outgrown demand.

One such sign: Malaysian carrier MISC announced that it will pull out of the container shipping business by the middle of 2012, citing losses of close to $800 million over the past three years. The container shipping industry is plagued by overcapacity and operators are struggling with depressed freight rates and soaring bunker fuel prices, the carrier told investors.

Ironically, MISC will focus attention on the fuel trade—specifically its core tanker business—which has far better margins than container shipping.

Global Supply Chains Confront Negative Exposure

Supply chain transparency is the bane of most global organizations—if not for the challenge and cost of connecting disparate business units and partners and synchronizing real-time information exchange, then for the increased exposure to scrutiny by ethics overseers and media alike.

Apple has been a popular target, a consequence of its squeaky clean, sparkling white product and marketing persona. The company has come under attack from various labor rights and green lobbies over the past few years regarding questionable offshore practices. Most recently, protestors have amplified criticism of Apple and other electronics manufacturers for sourcing conflict minerals from African mines where human rights abuses are rampant.

The manufacturer, famously hermetic when it comes to product development news, has become noticeably more open to sharing information about suppliers.

Food and consumer products companies that operate long and complex supply chains face similar exposure. Swiss food and nutrition company Nestlé, for example, has been plagued by claims that children are working on African cocoa farms supplying its factories.

In partnership with the Fair Labor Association (FLA), a Washington, D.C., non-profit that works with major companies to improve working conditions in their supply chains, Nestlé will send independent experts to the Ivory Coast next year to examine its cocoa supply chain. Where they find evidence of child labor, the FLA will identify root causes and counsel the manufacturer and government on how to address and resolve the situation.

Nestlé, which is seeking to become the first food industry member of the fair trade lobby, will publicize its assessment in 2012 and use that information to guide future operations.

The work with the FLA complements Nestlé's internal efforts to promote sustainability and better working practices in its cocoa supply chain, which it set out in the Nestlé Cocoa Plan. The road map is a 10-year, $118-million commitment to provide higher-quality cocoa plantlets to farmers and to make the cocoa supply chain more transparent.

A Toast to Job Creation

England is tipping its economic development hat to tipplers, according to a new report that highlights the vital role the beer supply chain plays within the country's rural economy.

Around 32,000 rural jobs in the East of England depend on brewing and pubs, with more than $755 million expended in rural wages. Farmers in the region grow enough malting barley to produce 3.3 billion pints of beer a year, according to the Grain to Glass report.

The study, launched jointly by the National Farmers Union (NFU) and the British Beer & Pub Association (BBPA), underscores the economic importance of beer and calls for the government to do more to help the industry grow, adding that thousands of jobs could be created if appropriate policies are put in place.

The report also addresses the challenges the sector faces from high taxes, heavy regulation, and falling beer consumption. Growers have been striving to improve the quality of barley and hops, but the government can do more to help the industry grow. The NFU and BBPA are calling for a number of policy changes, including a review of the beer duty and more investment in crop research and development.

They also argue for less and better regulation, both on and off the farm and in transport, counseling planners and local authorities to recognize the importance of the pub as the hub of rural communities.

"It's a marriage of skills between farmers, maltsters, brewers, and publicans that produces the perfect pint from the perfect ingredients," says Andrew Watts, a barley grower and NFU regional combinable crops chairman.

"It's time to raise a glass to this British success story and ensure we have the right policies in place to help this supply chain thrive in the future," he adds.